US earnings have had their best quarter since 2010, when they were bouncing back from the financial crisis. The members of the S&P 500 index increased their earnings by just over 26% year-on-year in the first quarter of 2018, bolstered by the introduction of corporate tax cuts, a weaker dollar, and healthy worldwide growth (around half the index's sales are made outside the US).
One of the hallmarks of this cycle is historically stretched profit margins. But now we are seeing the highest percentage of firms raising wages and prices since the 1990s, says John Authers in the Financial Times. That doesn't mean margins must fall at once. Indeed, companies are growing sales, and growth bolsters pricing power, so firms will take the opportunity to widen margins. But again, the scope for profitability to provide equities with much further impetus is limited.
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As the impact of earnings fades, interest rates are becoming more important, says Lahart. That's not good news for stocks. The tight labour market and signs that "inflation is warming up" have driven the yield on the ten-year Treasury bond to just over 3%, a near-seven-year high. That increases the relative appeal of bonds compared with stocks and in the meantime, the danger of unexpectedly quick interest-rate rises as inflation jumps still lurks in the background.
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Over 50s turn to equity release to clear average £30,000 debtEquity release is on the rise as homeowners in their 50s seek ways to tap into years of house price rises to pay off mid-life debts
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Has Terry Smith's fund succumbed to Saba?Activist investor Saba Capital has led pressure on fund manager Terry Smith to convert his Smithson Investment Trust into an open-ended fund - will Smith roll over?
